Japan’s strong yen is not helping the country as exports are becoming more expensive for overseas consumers. Weaker exports could now contribute to reduced consumer demand. Consumer prices fell for the 20th month in a row in October which is further evidence that the government is struggling to overcome the deflation that is undermining economic recovery. As opposed to the same tim last year, official figures showed that core consumer prices fell 0.6%. Although this was seen as a improvement on the 1.1% price fall seen in September this year, the continued threat of deflation, which is particularly damaging to economic growth looms.
Focus will no-doubt shift to the Bank of Japan who now face continued pressure to do more to fight deflation, with both ruling and opposition lawmakers calling for legislation that would give politicians more control over monetary policy. Some members of the BOJ said falling prices may hold back any long-term inflation expectations of companies and households with the view being that as a strong Yen, which continues to benefit just like the US Dollar as a safe haven asset, will make imports cheaper the fact that exports being more expensive is a balance that warrants caution.
The ever developing problem with North and South Korea will be carefully monitored by the markets, and we will have more on this when we get it.
Written by Luke Trevail